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Standard Bank Bets Growth Can Outpace Africa's Fastest Economies

(Bloomberg) -- Standard Bank Group Ltd., Africa’s largest lender, is predicting it can outpace the continent’s fast-growing economies in which it operates.

Stagnant gross domestic product in South Africa means the Johannesburg-based lender is having to rely on its business in 20 other sub-Saharan countries to compensate for rising costs and almost zero revenue growth in its biggest market. Kenya, Uganda and Ivory Coast are all expected to expand more than 6 percent this year and Standard Bank can do even better, said Chief Executive Officer Sim Tshabalala.

“Most of these countries are growing at much faster rates than South Africa," he said in an interview Thursday. “That, together with the fact that we are offering our customers new products and solutions, means we are bound to grow at much faster rates.”

While the lender’s South African unit was able to accelerate cost-cutting initiatives and lending in the second half of 2018, it was not enough to offset other pressures, such as lower income from interest rates charged on loans. That resulted in expenses growth exceeding revenue growth, contributing to the lender missing analyst’s turnover estimates, and sending the stock down by the most in a month.

Beyond Compare

Tshabalala, who in September 2017 became the first black person to lead the lender independently, is betting that Standard Bank’s on-the-ground footprint across the continent, including a controlling stake in a Nigerian bank, puts it ahead of its Johannesburg-based peers. Its network is “beyond compare in terms of the level of size, scale and maturity," he said.

The lender’s rest of Africa business contributed 29 percent of adjusted earnings for 2018, compared with 26 percent a year earlier. Profit before one-time items in the segment jumped 26 percent excluding currency fluctuations, while adjusted earnings at its South African unit declined by 1 percent.

Standard Bank is investing in its digital capabilities to draw more business and increase activity across its existing customer base. It is also seeking to reduce its capital exposure outside of Africa to focus on the continent amid intensifying competition from the likes of Absa Group Ltd., which is in 12 countries in the region, and Nedbank Group Ltd., which owns a stake in pan-African lender Ecobank Transnational Inc.

ICBC Talks

Talks have started with Industrial & Commercial Bank of China Ltd. about their combined business interests, which includes London-based ICBC Standard Bank and an Argentinian lender, Tshabalala said. “We’re quite sure that we will make good progress this year,” he said. Beijing-based ICBC owns 20 percent of Standard Bank.

In its home market, Standard Bank has room to lend more, after not yet having adjusted its risk appetite, the CEO said, adding he is confident the business will return to earnings growth with an improved economic outlook for South Africa. The push toward increased digitization and a reduction in the number of branches and floor space covered by its outlets will help cut expenses.

“We are very serious about cost discipline,” Tshabalala said in a presentation. “Our client experience, stability, and security metrics are strong. But the bar keeps being raised by new technology, new entrants to the industry, and changing expectations. We will continue to pour more resources and energy into improving client experience.”